A top Federal Reserve official on Friday warned mortgage servicing industry executives they could face enforcement actions and that they shoulder some of the blame for a sluggish economic recovery. "I have seen little or no evidence of improvement in the operational performance of servicers since the onset of the crisis in 2007," Fed Governor Sarah Raskin said in remarks to an industry conference in Park City, Utah.
"Until these operational problems are addressed once and for all, the foreclosure crisis will continue and the housing sector will languish," she said. Raskin, formerly the top bank regulator for the state of Maryland, said a review of loan servicing practices shows widespread weaknesses still exist.
The industry suffered a black eye in 2010 when it emerged that institutions were using machines to send foreclosure notices to homeowners, sometimes in disregard of actual circumstances. Regulators have to be ready to monitor loan servicing to ensure confidence is restored in the industry, and are prepared to take enforcement actions, where necessary, to address significant failures, Raskin told a housing finance conference.
More broadly, Raskin said continued high rates of foreclosures are holding back a recovery in the housing industry, which, in turn, is weighing on the economic recovery. "The pace of recovery is agonisingly slow," she said. "The critically important drag on the economy is the absence of any substantial recovery in the housing sector."
The Fed in November launched a $600 billion Treasury buying program aimed at fuelling stronger growth. While the recovery appears to be gaining momentum, the Fed has made clear it intends to see the bond-buying program through with unemployment at lofty levels and inflation below levels considered ideal by policymakers.